Have you ever thought about starting a business of your own but didn’t think it was possible? Believe it or not, the number of people who began a company rose significantly between 2014 and 2016. When considering your business options, there are four things to consider:
- Development stage
- Credit score
- Amount you need
- Ongoing costs
Business Loans
A business loan is a good option if you’re expanding a business, hiring new employees or need to purchase business equipment. They give you some additional layer of financial protection. And, if the company doesn’t do well, the lender will liquidate the assets to recoup the loan. Personal assets are left alone, and your credit score remains unblemished.
This is great if the idea doesn’t pan out as you thought.
Small Business Administration or SBA Loan
If you have a new business, you could be eligible for the SBA loan. The SBA loan service works with financial institutions to help you start a business or continue an existing company. In order to decrease the lender’s risk in case you default, the SBA takes on some of the risks. Since the risk is lower to the lender, they often provide loans that have lower rates.
SBA loan amounts are based on needs and business status and can be anywhere from $500 to $5.5 million. The loan can be used as working capital or fixed assets like equipment or furniture.
Besides, income and credit score, four additional criteria must be met:
- Be a U.S. business
- Are a for-profit company
- Money and time from yourself has been invested
- Unable to attain loans from other sources
Personal Loans
Personal loans are another option, and allow you to attain up to $100,000 for your business needs. These loans are much easier to attain, and some creditors provide them with credit scores in the 500s. Plus, you don’t need collateral to attain them, which means assets are not at risk.
Should you get this kind of loan? Here’s what to remember: if your business fails, you’re still on the hook to repay the loan. If you go into bankruptcy, you still have to make the payments. Failure to do so could damage your personal credit and hinder you from getting additional loans in the future.
Business Credit Cards
A business credit card is a smart investment for your company and is often better than a personal or business loan. Even better, when tax time comes around, you know what was purchased for the business. Plus, a business credit card makes it easier to establish a professional credit history so that you can attain a loan in the future.
Don’t get a business credit card if you don’t have good credit or you could be subjected to costly interest rates. Also, a business credit card can still hinder your personal credit, as some creditors will report the activity to the credit bureaus. If you fail to make your payments, you could see your personal credit score drop along with your business one.
You may even need to sign a personal guarantee, meaning you’d be responsible for it…good or bad.
Angel Investors
This is a wealthy person who will invest money in entrepreneurship and businesses. Angel investors are more than just capital raisers; they provide you with business advice, help with increasing your clientele and connect you with other investors and suppliers. For them, they have equity in the business where they earn money from your company or attain royalties from the products.
Crowdfunding
When you need help with financing for a business and loans and credit cards are out, crowdfunding may be your next go-to source. This is a worthwhile option. Think about it this way. In 2009, there were more than $3.7 billion sourced to over 143,000 projects on Kickstarter.
All you need to do to get the funding you need is share it on a site like Kickstarter, get the attention of investors through social media. People may give you a few dollars or thousands of dollars to get the project off the ground. And, any money you get doesn’t get repaid monetarily; it’s repaid by giving them recognition – thanking them by name or sending them a product prototype.
Bear in mind that getting financing through crowdsourcing is only done when your funding goal has been met. If you don’t raise enough money, you don’t have access to the money.
